Most of us will have come across the terms “freehold” and “leasehold”, but due to the relative scarcity of commonhold properties, very few can claim to be familiar with the phrase “commonhold”. Below we look at what this form of tenure means and why we shouldn’t necessarily shy away from it.
How does commonhold work?
The commonhold regime came into force in 2004 under Part 1 of the Commonhold and Leasehold Reform Act 2002. This effectively introduced commonhold as a new form of freehold ownership.
These provisions were primarily designed to assist tenants of residential leasehold flats – ie; those with shared services and shared common parts such as hallways, stairwells and lifts – although commonhold can be equally useful in commercial or mixed-use developments where shared facilities exist.
Under a commonhold development, each individual property owner will own the freehold to their flat, office or shop, while the freehold to the structure and shared parts will be owned by what’s known as a “commonhold association”.
Each individual property owner will be a member of the commonhold association – a company limited by guarantee, with the details decided by the association’s prescribed form of memorandum and articles – and each member will be allocated voting rights.
Each commonhold association will also have a “commonhold community statement”, which specifies the properties within the residential, commercial or mixed-use development, and the rules of that commonhold.
Typically, each owner will be responsible for the maintenance of their own unit, with the commonhold association responsible for the repair of the structure and common parts. Each individual owner will also be liable to contribute towards the expenses of the commonhold association, similar to the service charge payable under the leasehold regime, with provision for a reserve fund.
What are the benefits of commonhold?
Since its introduction, the use of commonhold has been implemented mainly in new developments – although technically an existing leasehold development can be converted into a commonhold scheme – such that there are still only a limited number of commonhold properties across England and Wales.
This does not mean, however, that you should shy away from purchasing a commonhold property, not least because there are several benefits to owning a property under this form of tenure.
One of the main benefits of owning a commonhold property is that you will have the opportunity to actively take part in how the building is run, with the ability to take steps to effectively enforce any breach by other property owners.
Further, in addition to having an increased level of involvement in your own commonhold community, the commonhold regime also addresses one of the main problems currently encountered by tenants of residential leasehold developments, namely the diminishing value of leasehold property as an asset.
In contrast to leasehold, there is no limit on how long you can own a commonhold property. A commonhold owner will instead own the freehold interest to their property that will not depreciate towards the end of any lease term. As such, commonhold properties may attract a premium as a result.
What are the drawbacks of commonhold?
Needless to say, the commonhold regime is not without its own problems, not least that it is up to the members of the commonhold association to enforce the rules under the commonhold community statement, easily leading to disharmony amongst residents.
There is also no requirement for the commonhold assessment – namely, the estimate of the overall costs of managing, maintaining, repairing and insuring the building – to be reasonable, whereby individual property owners will not have the benefit of any statutory protection over service charges available to residential leasehold tenants.
Accordingly, if you are thinking of buying a commonhold property, you should always seek expert legal advice so that you can make an informed decision about the pros and cons when buying against the traditional leasehold.
The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.